The Mexican House of Representatives recently approved an act, presented to Mexico’s Congress by President Peña Nieto, for the creation of Special Economic Zones (SEZ) that will change the development model for the south of Mexico, an area that has lagged behind in economic growth with respect to the rest of the country. In this Client Alert, the most important aspects of the act and the advantages that would apply to SEZs are described.
SEZs will be strategically located in poor areas in the south of Mexico close to ports, airports, railroads, highways, and municipalities with a population between 50,000 and 500,000 inhabitants, within the states of Chiapas, Guerrero and Oaxaca. The SEZs will be regulated under the Law of Special Economic Zones, and established by Presidential Decree. Following the example of countries such as China, South Korea, Panama and Ireland, SEZs will be designed to foster economic development and increase employment, production, trade and industrial growth in these regions. President Peña Nieto hopes to see the legislation passed within the next months, and to designate zones in 2016, with the first companies setting up in the areas in 2018.
The construction, development, administration and maintenance of the SEZs will be carried out by a Mexican private or government entity called “Integral Administrators” (Administrador Integral), which will acquire all the necessary ownership rights to the land to effectively operate the SEZ. The permit of Integral Administrators to operate the SEZs could be granted for a maximum period of 40 years, extendable once for the same period if certain requirements are fulfilled.
Investors will be allowed to rent lots and parcels within SEZs from the Integral Administrator so that they may construct buildings, perform manufacturing, development and storage activities, as well as installing machinery and equipment to provide services necessary for the economic growth of the SEZs. Domestic or foreign individuals or legal entities may qualify to become an investor in the SEZs, provided they obtain authorization from the Mexican Ministry of Finance and Public Credit.
Tax, customs, and administrative benefits will be granted to Integral Administrators and investors in each SEZ by Presidential Decree. The specifics of such incentives remain uncertain; however, they will depend upon the characteristics of each SEZ and international best practice. The benefits are proposed to last for a minimum period of eight years. Yet, the Act provides for a phasedown of such benefits over time.
Before a SEZ can operate, the Mexican Federal Government must enter into Tax Coordination Agreements with the States and Municipalities where the SEZs would be created.
The Special Economic Zones Act is still subject to changes by the Mexican Senate.